Create Wealth, Not Jobs

It's ironic that the same people pushing unsustainable job growth find the process of wealth creation so unsightly.

Soon after the president dropped his ill-advised "the private sector is doing fine" gaffe, White House press secretary Jay Carney scolded the media for failing to frame the comment in the proper "context." Which is weird, because the context is the worst part.

Yes, government "creates" jobs, often out of thin air. The private sector creates wealth—which, in turn, allows us to fund the vital work of sending weapons to Mexican drug lords and prosecuting Roger Clemens.

Yet there is a pervasive argument coming from Democrats these days—and, no doubt, the president was thinking of this context when he gaffed—that goes something like this: "You know, if local governments hadn't laid off all those public service workers—a policy conservatives embrace, mind you—the unemployment rate would be closer to 7 percent rather than 8 percent."

Let's just say that few Americans are grousing about the decline in government productivity since those dreadful purges. Having a robust array of government services is a luxury, not an engine of growth. Though taking out a massive advance against future prosperity to artificially pump up employment statistics might be an effective way to win re-election, it is no way to judge economic well-being. A decline of wealth, on the other hand, is.

A new survey from the Federal Reserve found that both American income and wealth have deteriorated dramatically since 2007, as the median real income has fallen by 7.7 percent—everyone taking a hit but "retirees and other nonworking families." For the average American, net worth has declined by about 40 percent since 2007—from $126,000 to $77,000. The average family can say goodbye to about 18 years' worth of savings.

Meanwhile, not only does the Bureau of Labor Statistics find unemployment rates of government workers at 4.2 percent but also studies find that public-sector employees—free of the constraints of demand—make more than their private-sector counterparts in similar vocations.

What this signals to the president, naturally, is that the economy is jonesing for more unsustainable busywork and debt. Hey, good salaries and job security—what's not to like?

Moreover, the context of President Obama's remark is simple: He believes that public-sector jobs are a vital measure of economic growth. This is the prevalent view from the left these days. "Everybody knows that government creates jobs," lied Sen. Sherrod Brown recently. Liberal Washington Post columnist E.J. Dionne quipped that when conservatives say "government doesn't create jobs," "the riposte should be quick and emphatic: 'Yes it has, and yes, it does!'" (And really, how can anyone argue with that kind of ironclad logic?)

It's ironic that the same people pushing unsustainable job growth find the process of wealth creation so unsightly. Not long ago, Obama and others on the left were busy attacking private equity, claiming that some people are good at "maximizing profits" but that that's not always "good for businesses or communities or workers." (Actually, it almost always is.)

But pumping money into public-sector unions is always good for businesses, communities and workers? Obama is peddling a "jobs" bill right now that features one pinch of protectionism, one pinch of feel-good veteran help and a few hundred cups' worth of wealth-sucking, union-growing debt inducement. Can anyone name a single policy proposal by his administration that even pretends to clear the way for private-sector wealth creation?

In context, the entire focus of the president is warped—not simply because he underestimated the health of the private sector but because he believes that any other sector matters when talking about the economy. It doesn't.

David Harsanyi is a columnist and senior reporter at Human Events. Follow him on Twitter @davidharsanyi.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Dr. Thaddeus Tingleberry||

    Goldman Sachs {et al.} create wealth in the same way that the Federal Reserve creates dollars.

    Sooner or later, someone else is going to have to create a good, or perform a service, to actually 'pay' for it.

    dum dee dum.

  • ||

    Doc, I once exlained wealth creation to a middle aged democratic union member and ardent obama supporter like this:

    "See that tree over there? *pointing to a large pine tree*
    How much is it worth? Lets say 5 bucks. If you and I go over there and cut it down, trim it and move it to the side of the road it would make a nice saw log. We busted our asses making it into a saw log accessible by a log truck, so we added value to it. Lets say now it is worth ten bucks.
    A log truck comes along and gets it and takes it to the saw mill. He spent labor and gas and equipment making the log worth more, so now it is worth 20 bucks. The saw mill saws it into boards, making it worth more, say 40 bucks. A carpenter buys the boards and builds a house. Now the tree, as a house, is worth much more...say 10,000.

  • ||

    The amount of money around should reflect how much actual wealth we have cuz those dollars are just paper, not wealth. You cant live in a dollar but you can in a house. dollars only represent how much wealth we have. We should only have 10000 bucks around because that is how much wealth we have. If we print up 100,000 more without building houses, we dont have more wealth, we just have more dollars representing the same house we already have. *I am proud to say that at this point I actually began to see a light come on in the guys eyes*

    Printing money doesnt make you wealthy. Sawing logs and driving nails does."

    It is terrifying to me that the most basic economic concepts have to be explained to middle aged voters in such simplistic terms, but....dum de dum. Maybe I made a dent, maybe I didnt.

    Fuck character limits

  • Sevo||

    "Printing money doesnt make you wealthy. Sawing logs and driving nails does."

    Dunno, Suthenboy, you might have just re-enforced the labor theory of wealth for the guy.
    Problem is, it's not the sawing and hammering that does they trick, it's doing so in a manner that increases the value of the material. It's the brains to know when to saw and hammer.

  • Dr. Thaddeus Tingleberry||

    I'm not excluding the value of allocating capital. And I'm not sure why Suthenboy, you'd think I'd conflate wealth with fiat currency.

    What I'm thinking of is the seeming discordance between claiming any government efforts to 'create jobs' are per se futile as a drain on the economy, but, for example, claiming that a Big Bank is creating jobs by hiring a bunch of people to conduct interest rate swaps on middle tranches of CDOs comprised of mix Alt-A and subprime mortgage loans on houses that were over-appraised, on loans likely to result in default...

    Let's assume for the moment I understand roughly why Bank A would want to swap a floating for fixed rate with Bank B.

    And let's assume it may or may not be the case that the banks engage in bilateral swaps in roughly the same amount.

    Let's also assume that the banks may or may not be wholly owned subsidiaries of a grandparent corp.

    Whatever - I'm genuinely not espousing a position other than to say, Sevo, that the hammering and sawing is the sine qua non of the whole thing.

    To me, it seems like labor isn't integral to your pet theory of how wealth is created, you assume the position that moving around, repackaging, and trading risk on DEBT {a big chunk of the growth in the financial sector, itself a big chunk of growth in GDP, etc.} is as productive of value or wealth as actually doing the hammering, or lending the guy the money to buy the hammer.

  • Dr. Thaddeus Tingleberry||

    ... In other words, if the labor doesn't really matter, if only commie nazis would question the limits of productive activity coming out of future promises to pay... how do you explain a derivatives black hole in the multi-Trillions, representing more money than actually *exists*?

    If the notional value is many times the amount of money on Earth {and, I'd guess, Mars}, and many folks on Wall Street bought McMansions and shitty Italian sports cars with their salary, commissions and bonuses...

    Isn't their activity leeching off the {pardon me} "real economy" in a way similar to what you think government, necessarily, is doing?

    Basically, in my view, at some point, those earning money based on {ultimately} future promises to pay {pay earned through future labor} aren't creating wealth - they're simply stealing it from future labor.

    Hey, I'll allow I'm looking at the thing wrong... but as someone who worked at a white collar defense firm for a few years... it strikes me that calling a lot of Wall Street's activity "wealth creation" is just unbelievable, ideologically-driven horseshit.

    i'm not attacking capitalism - I'm attacking bullshit masquerading as capitalism.

  • Being Waterboarded||

    You make a good point in that just because the private sector (e.g. banks, etc.) are doing something it does not necessarily result in general wealth creation. This could be for many reasons including: 1. poor decisions by someone in a company to invest in a losing idea. 2. actions precipitated by a (government) distorted market. 3. actions to generate personal wealth by government favor versus free market incentives. This results in wealth transfer more so than wealth creation. 4. actions driven by something other than the monetary profit incentive (for example, if Apple had given all it's money to charity rather than investing in the development of the iPhone).

    I posit that Wall St. actions would result in much more wealth creation (via the mechanisms suggested by previous posters) if government favors did not influence virtually all of their actions.

  • Sevo||

    "Isn't their activity leeching off the {pardon me} "real economy" in a way similar to what you think government, necessarily, is doing?"

    Nope: Excluding intended fraud, *every* free trade increases wealth, period.
    Two parties exchanged goods, and each got a good valued higher than the good given up. Pretty basic to econ. Your 3rd-party sniveling about shitty sports cars kinda gives you away there.
    Oh, and the Labor Theory of Wealth was Marx's 'contribution', so, yeah, it's pretty much "commie".

  • 35N4P2BYY||

    Pretty sure that no one is recommending that an economy should be entirely based on securities trading... but those securities come from somewhere and serve some purpose.

  • Dr. Thaddeus Tingleberry||

    The question is whether all purposes are equal as to creating value, though, right?

  • Sevo||

    Dr. Thaddeus Tingleberry|6.13.12 @ 12:28PM|#
    "Goldman Sachs {et al.} create wealth in the same way that the Federal Reserve creates dollars."

    Absent middle-men distributing capital between those who have it and those who need it, we'd be a lot less prosperous, so, yes, GS [et al] create wealth.

  • Randian||

    Yes, this exactly. Having individuals and institutions who can efficiently distribute capital is extremely wealth-producing, much in the same way that management at a company, comprised of individuals tasked with efficiently allocating labor, are wealth producers.

  • Keith3D||

    I dunno, there's not a lot of fundamental barriers left these days between firms and investors who'd like to give them money, given modern technology.

    Yes middle men can increase efficiency, they take a (in my opinion excessive) cut in return to support their wildly inefficient operation (are they still 20-25% of the economy?), so you'd have to compare the cost and benefit, I'd say. Too bad we never got a chance to see what system would arise spontaneously when the old one fell.

  • Sevo||

    "they take a (in my opinion excessive) cut"

    In that case, you can easily prove it: Do the same for less and make a fortune.
    Or admit, that as a 3rd-party, you pretty much don't know what you're posting about.

  • Keith3D||

    Maybe I'll take you up on that. Spot me a few million to get over the regulatory hurdle that wall street wrote?

    Or perhaps I can "easily" support my argument by pointing to evidence. For example the rise of discount brokerages and index funds, microloans, angel investors. Oh and the little fact that I alluded to already, where much of the old system has actually gone bankrupt, save for government intervention. Pretty impressive list already, especially since I'm just a 3rd party who doesn't know what he's posting about.

  • Sevo||

    Keith3D|6.13.12 @ 6:53PM|#
    "Maybe I'll take you up on that. Spot me a few million to get over the regulatory hurdle that wall street wrote?"

    Nope. You made the claim, you provide the capital.
    It may be that the government distortions drive the costs, but the costs are there until that gets solved.
    You remain a 3rd-party whiner.

  • Keith3D||

    "Nope. You made the claim, you provide the capital.
    It may be that the government distortions drive the costs, but the costs are there until that gets solved.
    You remain a 3rd-party whiner."

    Feel free to respond to the arguments I made in my posts with actual arguments of your own. If you can...

  • Sevo||

    "Feel free to respond to the arguments I made in my posts with actual arguments of your own. If you can..."

    Uh, if you learned to read, there might be a chance.
    What a bozo.

  • Keith3D||

    All I see from your is terse answers (suggesting a fear of being caught saying something wrong) and insults (again suggesting defensiveness over IQ, and a generally antisocial personality). But I forgive you, we all can suffer from that weakness occasionally. Plus you might still be smart, often smart people's worst fear is being wrong, which can be a healthy thing in other non-internet-flame-related aspects of life. So you go on doing your thing, lil' flamer.

    Meanwhile the one argument you made seems to imply the impossibility of outcompeting current market leaders, which is not just a ridiculous argument, it is sad that you think this. Where will progress come from then?

  • Sevo||

    Keith3D|6.13.12 @ 11:24PM|#
    "All I see from your is terse answers (suggesting a fear of being caught saying something wrong) and insults (again suggesting defensiveness over IQ, and a generally antisocial personality)."

    Oh, look! Ignoramus tries two-bit psycho-bullshit to defend stupidity! How original!
    You made the claim, I busted you on your bullshit, you offered irrelevancies and whining in response.
    Go away, asshole.

  • Keith3D||

    Awww you're just adorable. You tell me how it is!

    And yes demanding I make a mid-career change to prove a point is definitive proof you win at arguing.

    But you mention irrelevancies, perhaps you simply don't understand my arguments. You should ask what I mean rather than getting yourself all worked up.

  • Almanian's Evil Twin||

    CAPTIONS!!!

    "You guys see the Turtleman this week? He was THIS close to grabbing that weasel, and it jumped right past him! LIIIIIIIVE ACTION!"

  • ||

    "Those guns? They were only like this big? Not that we knew anything about them."

  • JD||

    "This is how thick the stack of regulations will be so that private business can't compete with government and they'll come running to us."

  • Gadianton||

    "Everybody knows that government creates jobs," lied Sen. Sherrod Brown recently. Liberal Washington Post columnist E.J. Dionne quipped that when conservatives say "government doesn't create jobs," "the riposte should be quick and emphatic: 'Yes it has, and yes, it does!'"

    Government creates jobs in the sense that it puts people to work, and they get a paycheck. What the left doesn't understand (or refuses to admit) is that these jobs are not a net gain for the economy. They are, in fact, a net loss for the economy because the money to pay for them comes out of the economy.

  • Dr. Frankenstein||

    Not everything. You can make an argument that some things the government does creates wealth especially on a local level. Roads (drink) schools and police do provide a service that in the absence of government people will pay for because they provide value. The problem of course being the lack of feedback on effectiveness, the lack of ability to change providers in the face of a poor performance, and a lack of knowledge of what the right prices for those services are.

  • Gadianton||

    The fact that we would provide these services privately in the absence of government doesn't make them any less a drain on the economy (albeit one we've decided is necessary) while the government is providing them from the public purse.

  • Being Waterboarded||

    Yes, the key question is not whether or not a government service creates wealth. The key question is whether the wealth created is more than would have been created had the necessary funds not been plundered from the market economy. Remember Bastiat.

  • The Hammer||

    But, but, but, but....MULTIPLIER!!!!

  • Carston||

    "everyone taking a hit but "retirees and other nonworking families.""

    Not working never looked so good...

  • Mr. FIFY||

    "We don't begrudge people making money"

    I laugh every time I hear a liberal pretend they don't hate wealthy people.

  • ant1sthenes||

    As much as it sucks to lose net worth, I'm sure a lot of that was not resulting from a change in the actual possessions held, or physical condition of those possessions, but instead due to a change in the market valuation of those possessions. Value is created in people's minds, not in either industry or government.

  • Sevo||

    Exactly.
    The 'wealth' that was lost = precisely zero. The 'expected wealth' that was lost was quite large.

  • DarrenM||

    For the average American, net worth has declined by about 40 percent since 2007—from $126,000 to $77,000. The average family can say goodbye to about 18 years' worth of savings.

    How much of that 'wealth' came from the housing bubble to begin with?

  • Sevo||

    "How much of that 'wealth' came from the housing bubble to begin with?"
    Per above, it wasn't wealth, it was 'presumed' wealth.

  • ||

    ut pumping money into public-sector unions is always good for businesses, communities and workers? Obama is peddling a "jobs" bill right now that features one pinch of protectionism, one pinch of feel-good veteran help and a few hundred cups' worth of http://www.lunettesporto.com/l.....c-3_8.html wealth-sucking, union-growing debt inducement. Can anyone name a single policy proposal by his administration that even pretends to clear the way for private-sector wealth creation

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement